French CC clears contractual conditions Bouygues

In its decision of 12 May 2006, the Competition Council gives some interesting views on the competitive situation of the market for the wholesale distribution of mobile phone products and services.

This decision is also likely to have an impact on the on-going monitoring of the MVNO market (identified by the European Commission as market n° 15: wholesale market for mobile access and call origination) carried out by ARCEP (the French NRA for the communication sector) which decided in May 2005 to withdraw draft measures proposing to impose various regulatory remedies on the three mobile operators. It should be also noted that this decision came after the record fine imposed by the Council in November 2005 on the same three mobile operators for various concerted practices that took place in the retail market.

On 12 January 2004, Stock-Com, a wholesaler distributing mobile phone products and services, filed a complaint with the Competition Council alleging that Bouygues Telecom (BYT) had infringed article L.420-2 para. 2 of the French Commercial Code which prohibits any conduct by an undertaking which amounts to an abuse of the economic dependency of one of its clients or suppliers when it is likely to affect the development or the structure of competition. Since 1999, BYT has set up its own independent distribution network and has entered, between 1999 and 2004, into five distribution agreements with Stock-Com.

Stock-Com alleged that it was economically dependant on BYT due to various factors:

As from 2000, BYT had imposed on Stock-Com a contractual obligation to achieve 60 per cent of its total turnover through the distribution of BYT’s products, increasing this objective up to 70 per cent for 2001, failure to comply with that provision would lead to an automatic termination of their agreements;

Purchase and resale prices as well as commercial conditions imposed by BYT on Stock-Com for the selling of “mobile phone products packs” and SIM cards which would not allow Stock-Com to achieve a margin hence creating a de facto dependency towards BYT since Stock-Com would be forced to draw its revenues from the subscription of BYT call services;

The fact that other mobile operators imposed similar obligations on their wholesaler distributors leading to de facto ‘single branding’ distribution and preventing Stock-Com in practice from distributing competing brands;

The fact that Stock-Com would not be in a position to switch to another mobile operator distribution network in view of the financial risk that it would probably incur by doing so.

Stock-Com complained that BYT had abused this situation of economic dependency by granting its subsidiary Teleciel, which also acted as a wholesale distributor of BYT products, various pricing and commercial advantages on a discriminatory basis.

The French Competition Council rejected Stock-Com’s complaint finding that it had failed to demonstrate the existence of a case of economic dependency vis-à-vis BYT.

Although the Competition Council acknowledged that, in 2004, Stock-Com had achieved nearly 100 per cent of its turnover by distributing BYT products and services, it also considered that this situation was not a result of the contractual conditions allegedly imposed by BYT to Stock-Com. The Competition Council noted that Stock-Com had already achieved nearly 100 per cent of its turnover by selling BYT products and services in 2000, prior to the signing of the first agreement with BYT.

In addition, the French Competition Council based its assessment on the prevailing multi-brand strategy implemented so far by the three mobile operators. The Council sets out a number of elements showing that the three French mobile operators had never refused to establish commercial distribution agreements with multi-brand wholesalers and that they refrained from imposing any contractual or de facto single branding obligation to wholesalers. Thus, the Council suggested that the three French mobile operators have so far refrained from adopting any anticompetitive strategies in setting up and implementing of their wholesale distribution networks.

It is also worth mentioning that the Competition Council adopted a wide definition of the market for wholesale distribution of mobile services. The Council included in this market wholesalers such as Stock-Com, whose activity is essentially to resell mobile phone services with very limited possibility to differentiate their services, as well as mobile voice call services providers (Société de Commercialisation de Services, SCS) which are fully responsible for dealing and invoicing their clients and bear all the financial risks related to that activity, and as such, are closer to Mutual Virtual Network Operators (MVNO) although they have no access to the mobile network of the host operator.

Finally, this decision may bring additional elements to support the view that the increasing level of competition prevailing in the French mobile voice call market does not require ex ante regulation of the wholesale market for mobile access and call origination.